Falling dairy prices remain the major worry for the New Zealand economy as economic growth continues to slow from a peak of 3.7% at the end of 2014 to a forecast trough of 2.2% in the first half of this year.
This morning's GlobalDairyTrade auction will play a crucial part in the equation for economic growth being worked out by analysts around the country.
If, as expected by analysts, dairy prices have slumped again, this is likely to put pressure on local dairy companies to further reduce their already poor payout forecasts.
Further weakness in dairy prices will also be affecting everyone's expectations for the 2016-17 milk price.
ASB chief economist Nick Tuffley released the bank's quarterly economic forecasts yesterday, predicting a bumpy ride ahead for the economy with low inflation likely to continue.
In a flashback to mid-2015, Chinese equity markets had slumped and worries about the underlying health of the Chinese economy had risen to the top of the watch list.
Add in some geopolitical risk, slumping oil prices and euro zone banking concerns and the year had started off on the back foot, he said.
"There are some legitimate worries about the global economy. Chinese growth is slowing, but doubts over the accuracy of the official growth figures mean no-one is entirely sure of the extent of the slowdown.''
However, there was a definite trend of slowing growth in industrial activity and capital spending. Industrial overcapacity could spread disinflation, Mr Tuffley said.
The lift in United States interest rates, and the prospect of more, had ripple effects over and above the US economy.
Emerging economies, particularly in Asia, were vulnerable to both China's slowdown and the impacts of rising US interest rates.
Lastly, falling commodity prices were affecting incomes of commodity producers.
"But even so, the global growth outlook for 2016 doesn't look too different from the performances achieved over the past few years. For New Zealand, developments like low oil prices are a distinct net positive.''
The New Zealand outlook itself was "quite reasonable'', he said.
The economy hit a soft patch in the first half of 2015 but annual growth would bottom out above 2% and steadily increase as supportive factors continued.
Dairy incomes would remain a drag on growth but the impacts of lower interest rates and the New Zealand dollar were increasingly evident. Tourism, in particular, was charging along with strong growth in visitors and per-person spending.
The cautionary tale about New Zealand's overall growth performance was population growth was accounting for much of New Zealand's current growth, Mr Tuffley said.
While 2% growth in the number of people was twice the historical average, the overall economic growth now was not much more than that figure.
The drag from low dairy incomes was there, just hidden by all the extra people and largely confined to the regions.
Although the overall economy was doing reasonably well, at an individual level, the progress felt more pedestrian.
"A theme we have been banging the drum over for months is the lack of inflation. New Zealand inflation is now so missing that ‘Where's Wally' is at risk of losing his job. The trend over the past few years is for inflation to surprise with its weakness, even against forecasts that have also become weaker over time.''
Further plunges in the price of oil were a part of it, just as they were a year ago, he said.
Putting oil prices aside, inflation was very subdued and wage inflation remained weak, he said.
New Zealand was not alone in experiencing muted inflation, but it was notable inflation remained inert even during New Zealand's stronger period of post-recession growth in 2014.
For that reason, the ASB expected the Reserve Bank to cut interest rates further this year, Mr Tuffley said.
As the focus went back on the easings of large central banks - and timid rate hikes in the case of the US Federal Reserve - the Reserve Bank's reluctance to cut the OCR meant the New Zealand dollar risked remaining one of the taller hobbits in the room.
Further official rate cuts were by no means assured, but by June, ASB expected the Reserve Bank would respond to added risks of low inflation persisting, he said.
At a glance
• Economic growth forecast to be 2.2%
• Population growth of 2% means virtually no growth
• Falling dairy prices a major concern
• Falling interest rates and the dollar will support growth
